Vodafone's £514m China connection

VODAFONE, the cellphone group, is spending £514m to boost its stake in what is set to become the world's largest mobile company - China Mobile Hong Kong. The move lifts its holding from 2.18% to 3.27%. Vodafone, which wants a 20% stake over the next few years, bought its initial stake in November 2000 for £1.75bn.

As part of the deal, Vodafone wins the right to appoint its chief executive Sir Christopher Gent to China Mobile's board. It has also persuaded the Chinese giant to pay a dividend, which could return as much as £80m to Vodafone's coffers next year. Vodafone fell 1 1/2p to 110 1/2p.

Subscriber growth in most of Vodafone's markets has stalled. But in China it is set to rocket because only 12% of people own a mobile, while only 14% of homes and businesses have a fixed-line phone. Each month 5m of China's 1bn population buy a mobile. China Mobile has a 60% market share.

China Mobile is using the money to buy eight provincial networks from its State-owned parent in a £7bn deal that will lift its subscriber base to almost equal Vodafone's 101m.

Gent said the deal demonstrated the companies' commitment to cooperate. Last February, the pair signed a deal to work together on areas such as research and development, and network and customer management. Gent said: 'This is an excellent opportunity. It will create long-term value for Vodafone.'

SG Securities said Vodafone had taken advantage of low prices caused by the current gloom in the telecoms sector.